U.S. PCE May Boost Rate Cut Expectations but Have Limited Impact on USDX

Summary:

Overall, the PCE data is expected to bolster rate cut expectations. However, since the market has already priced in this, the U.S. dollar index (USDX) is likely to just see a brief dip after the data release, and it will rise again due to the "Trump Trade."

BUY USDX

Close Time

CLOSED

104.030

Entry Price

104.700

103.570

99.190 +0.060 +0.06%

31.0

Pips

Profit

103.570

104.340

Exit Price

104.030

Entry Price

104.700

Fundamentals

The dollar index has been trading within a narrow range in recent sessions, closing slightly up by 0.07% on Thursday. It appears the market is at a crossroads. Following "Black Wednesday" for U.S. stocks, the downturn has yet to cease. Although the Dow Jones Industrial Average rose last night, the S&P 500 and Nasdaq indices continued to decline, with the Dow's gains being less than the losses of the other indices.

The "Fear Index," VIX, continued its recent upward trend, closing at 18.46, marking a 14-week high, which suggests a more turbulent future. This may explain the dollar index's movements in a narrow range recently—fear has kept the market cautious.

U.S. Q2 GDP data significantly exceeded expectations, accelerating to 2.8% from 1.4% in Q1, surpassing the 2.0% forecast. Wall Street interpreted this as a signal of "not in a hurry to cut rates" or "a rate cut in September seems reasonable."

Today's focus should be on the U.S. June PCE price index. Historically, this data has not had a dramatic impact on the market, as about 75% of PCE products and services overlap with CPI components, while the remaining 25% differs due to different calculation methods. Therefore, PCE results generally align with CPI results unless there are significant surprises. This is why the market reacts less to PCE compared to CPI. However, the PCE data is more important for the Federal Reserve than CPI.

This time, the situation may be different, as the market is closely watching this data. If the PCE data is below expectations, market sentiment will ease. If it exceeds expectations, it could trigger more severe sell-offs.

Technical Analysis

In the 4-hour chart, the dollar index is hovering near the 0.382 Fibonacci retracement level (104.374) and trading within the narrow range of 104.223–103.8. A break from this range could initiate a new trend. Key support is at 103.2, which is the bottom of the downtrend channel in the daily chart; a break below this level could start a new downtrend. Key resistance is at the 0.236 Fibonacci retracement level (105.506).

As for indicators, both the baseline and the conversion line of the Ichimoku chart are moving sideways, with the current price near these lines. If the price moves away from these lines, it would suggest a short-term drop in the dollar index. Conversely, staying close would indicate a potential rise. U.S. PCE May Boost Rate Cut Expectations but Have Limited Impact on USDX_1

U.S. PCE May Boost Rate Cut Expectations but Have Limited Impact on USDX_1

Trading Recommendations

Trade Direction: Buy

Entry Price: 104.039

Target Price: 104.7

Stop Loss: 103.57

Support: 104.163, 103.636

Resistance: 104.374, 104.698, 105.08

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